Forex

IMF Revives Recession Warning for U.K. Economy Over Brexit Vote

Published

8 years ago

June 18, 2016

The International Monetary Fund weighed in once more with its thoughts on Britain’s referendum, warning the U.K. could slide into a recession if it quits the European Union.

In a 64-page document, the Washington-based fund said that the size of the hit would depend on a multitude of factors, though its overall assessment is that the U.K. “would likely be worse off economically in the long run.”

The IMF also warned of a potential credit squeeze if liquidity markets dry up, which could stymie spending and investment. The Bank of England has moved to preempt this with additional auctions to make funds available to banks before and after the vote.

The IMF delayed publication of the report by a day after campaigning in the referendum was halted following the fatal shooting of Labour Party lawmaker Jo Cox on Thursday. Speaking on Friday, Managing Director Christine Lagarde said her thoughts were with Cox’s family and friends.

‘Adverse’ Scenario

In its report, the IMF presented forecasts for “limited” and “adverse” Brexit scenarios. In the worse situation, it sees growth slowing sharply this year and the economy shrinking 0.8 percent in 2017. The impact would see the economy 5.6 percent smaller by 2019 compared with a baseline forecast, while unemployment would rise above 6 percent and the deficit would be wider.

IMF officials said that a permanent hit to output would probably mean deeper austerity. Chancellor of the Exchequer George Osborne has said an emergency budget would be required within two months of a Brexit to fill a hole in the public finances.

“While recognizing that this choice is for U.K. voters to make and that their decisions will reflect both economic and non-economic factors, directors agreed that the net economic effects of leaving the EU would likely be negative and substantial,” the organization said.

The intervention is not the first from the IMF, which has issued several warnings on the potential impact of Brexit. Lagarde has also defended the organization’s stance, saying that officials are “just doing our job” in presenting their analysis.

The BOE and the Treasury have also issued referendum-related forecasts, and all have been criticized by the pro-Brexit lobby for scaremongering. “Leave” campaigners have also accused the IMF of a poor track record for failing to predict past events such as the 2008 financial crisis.

Quantifying Losses

In the long run, much of the economic impact would depend on what could be negotiated after a vote to leave, the IMF said. There would be direct negative effects from reduced trade access, as the country would be unlikely to quickly establish agreements with other countries. Brexit could also bring losses in productivity, which would be magnified if Brexit were accompanied by restrictions on migration.

Uncertainty during the transition could delay investment and hiring, and some firms may relocate if their business depends on access to the single market, according to the fund. It sees finance and manufacturing as the most vulnerable.

“Exit from the single market would almost certainly reduce market access of U.K.-based financial firms — both domestic and foreign — to the EU, subject them to regulatory uncertainty for some time, and force them to re-examine business models,” the IMF said.

There’s also the potential for a vicious circle where households hold off buying durable goods and property, resulting in weaker demand which in turn pushes up unemployment and further reduces consumption, the IMF said.

The paper estimated that sterling could plunge as much as 15 percent, which would push up inflation to 4 percent — double the BOE’s target. IMF officials also discussed more fundamental economic issues for the U.K., including low productivity growth, the record current-account deficit and high levels of household debt.

The BOE has said it would face a tradeoff between containing inflation and boosting output in the event of a vote to leave. It warned on Thursday that the potential impacts of a U.K. exit from the EU extend beyond Britain, with spillover effects to the global economy. The IMF also highlighted external risks, and said other EU economies are most vulnerable, especially Ireland, Cyprus, Malta, the Netherlands and Belgium.

Up Next

Forex Weekly Outlook June 20 – 24

Don't Miss

Currency Market on Alert for Yen Intervention Amid Brexit Strife

Samed Olukoya

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

Comments

Naira

Black Market Dollar to Naira Exchange Rate Today 17th May 2024

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 17th, 2024 stood at 1 USD to ₦1,540.

Published

2 days ago

May 17, 2024

Samed Olukoya

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 17th, 2024 stood at 1 USD to ₦1,540.

Recent data from Bureau De Change (BDC) reveals that buyers in the Lagos Parallel Market purchased a dollar for ₦1,560 and sold it at ₦1,550 on Thursday, May 16th, 2024.

This indicates a slight improvement in the Naira exchange rate when compared to today’s rate.

The black market rate plays a crucial role for investors and participants, offering a real-time reflection of currency dynamics outside official or regulated exchange channels.

Monitoring these rates provides insights into the immediate value of the Naira against the dollar, guiding decision-making processes for individuals and businesses alike.

It’s important to note that while the black market offers valuable insights, the Central Bank of Nigeria (CBN) does not officially recognize its existence.

The CBN advises individuals engaging in forex transactions to utilize official banking channels, emphasizing the importance of compliance with regulatory frameworks.

How much is dollar to naira today in the black market

For those navigating the currency exchange landscape, here are the latest figures for the black market exchange rate:

Buying Rate: ₦1,540
Selling Rate: ₦1,530

As economic conditions continue to evolve, staying informed about currency exchange rates empowers individuals to make informed financial decisions. While the black market provides immediate insights, adherence to regulatory guidelines ensures stability and transparency in forex transactions.

Forex

SEC and ABCON Explore Collaboration for ‘Kolectyomoni’ Digital Currency Platform

Published

3 days ago

May 17, 2024

Samed Olukoya

The Association of Bureaux De Change Operators of Nigeria (ABCON) has initiated talks with the Securities and Exchange Commission (SEC) to explore collaboration on its upcoming digital currency market platform, ‘Kolectyomoni’.

This move was underscored during an official visit by ABCON representatives to the newly appointed Director General of the SEC, Dr. Timi Agama. Aminu Gwadabe, President of ABCON, conveyed the association’s eagerness to engage with SEC to ensure the smooth operation of its digital currency platform.

Gwadabe emphasized that ABCON recognizes the regulatory oversight of SEC in the financial sector and seeks its guidance to navigate the complexities of the digital currency market.

He pointed out that while digital currencies hold immense potential for financial inclusion and innovation, they also present regulatory challenges that require collaborative efforts between industry stakeholders and regulatory bodies.

Highlighting the significance of embracing digital currencies, Gwadabe noted, “The future of BDC’s business is digital currency.”

He stressed the growing adoption of digital currencies among Nigerians, citing statistics that reveal a rising number of participants in the digital currency ecosystem, with a substantial market size of $9 billion annually.

In response, Dr. Timi Agama expressed SEC’s openness to support and facilitate the growth of the digital currency sector in Nigeria.

He acknowledged ABCON’s initiative in launching the ‘Kolectyomoni’ platform and assured of SEC’s cooperation in providing regulatory guidance and oversight.

Agama reaffirmed SEC’s commitment to fostering innovation in the financial sector while ensuring investor protection and market integrity.

He underscored the importance of collaboration between regulators and industry players to develop robust frameworks that foster innovation and safeguard against potential risks.

Furthermore, Agama encouraged ABCON to finalize the development of the ‘Kolectyomoni’ digital currency platform and submit it to the SEC for thorough review and assessment by the technical team.

He emphasized the need for timely regulatory oversight to address emerging trends in the digital currency market and maintain regulatory compliance.

Naira

Black Market Dollar to Naira Exchange Rate Today 16th May 2024

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 16th, 2024 stood at 1 USD to ₦1,560.

Published

4 days ago

May 16, 2024

Samed Olukoya

The black market, also known as the parallel market or Aboki fx, US dollar to Nigerian Naira exchange rate as of May 16th, 2024 stood at 1 USD to ₦1,560.

Recent data from Bureau De Change (BDC) reveals that buyers in the Lagos Parallel Market purchased a dollar for ₦1,530 and sold it at ₦1,520 on Wednesday, May 15th, 2024.

This indicates a decline in the Naira exchange rate compared to the current rate.

The black market rate plays a crucial role for investors and participants, offering a real-time reflection of currency dynamics outside official or regulated exchange channels.

Monitoring these rates provides insights into the immediate value of the Naira against the dollar, guiding decision-making processes for individuals and businesses alike.

It’s important to note that while the black market offers valuable insights, the Central Bank of Nigeria (CBN) does not officially recognize its existence.

The CBN advises individuals engaging in forex transactions to utilize official banking channels, emphasizing the importance of compliance with regulatory frameworks.